The fund rose 3% (SEK) in August, compared to the benchmark rising 1.4%. The fund’s off-benchmark bets in Consumer Discretionary (Danang Rubber, Phu Nhuan Jewelry), Information Technology (FPT Corp), and Real Estate (Dat Xanh Group, LDG Investment) were the key contributors for the positive relative performance during the month.
According to proposed new regulations, local asset management companies can create ETFs on stocks where the foreign ownership limits have been reached (a.k.a. FOL stocks), which give foreign investors an alternative to get exposure to companies they previously weren’t able to , or had to pay a big premium for when buying from other foreign holders. The development was rejoiced by the market participants and resulted in increased investors’ interest in FOL full names. Currently approx. 19% of our portfolio holdings are FOL stocks. In addition, FPT posted an impressive earnings growth of 29% during 7m2019 due to good performance in Software outsourcing. DXG performed well in August as results were better than expected and thanks to the weak price performance in previous months as a result of the issuance of new shares. In addition, Kido Frozen Food (KDF) performed well due to robust earnings during 7m2019, shares buy-back announced by the company, and a potential listing to the mainboard (HSX) by the end of 2019. Negative contribution accrued from the fund’s overweight in Materials (Hoa Sen Group, Ha Tien 1), Financials (SSI Securities, VNDirect Securities), and Real Estate (Vingroup). In August, Vingroup announced that they will enter the airline business with the name of Vinpearl Airline. Vinpearl Airline expects to debut its first commercial flight in mid-2020 with six planes to start with. As a leader in the tourism industry, Vingroup looks to leverage the existing asset base and cross-selling.
The fund reduced its weight in Industrials (Power Construction JSC No.1) and Financial (HD Banks) during the month.
The market rose 1.4% (SEK) in August, outperforming both the MSCI Emerging Markets (-2.5% SEK) and the MSCI Frontier Markets (+0.9% SEK). Without the currency effect, the market dropped by 1.1% due to negative sentiment emanating from the escalation in the trade dispute between the U.S and China as both sides reciprocated raise in tariffs. Foreign investors sold USD 135m worth of stocks during the month, mainly large-cap names as Hoa Phat Group, VietJet Air, SSI Securities, etc. The market was supported by local investors as they see Vietnam as a beneficiary of US businesses moving out of China. Companies announcing buy-back of treasury shares (such as Kido, VP Bank, HD Bank, VietJet Air) also boosted sentiment on the street. Liquidity improved to USD 197.5m in terms of average daily traded value.
Ho Chi Minh Stock Exchange is working towards launching three new indices, namely VN Diamond Index (VN Diamond), Vietnam Leading Financial Index (VNFIN Lead) and Vietnam Financial Select Sector Index (VNFIN Select). VN Diamond comprises of 10-20 main FOL stocks (or close to full) and minimum market capitalization of USD 215m. Local asset managers are in discussion to launch ETF by yearend on the index and shall provide easy access to otherwise restricted FOL stocks to foreign investors.
The Politburo, the top decision-making body of the FDI, issued a resolution to promote foreign investments only in selective sectors with high-value addition, linking global supply chain, advanced technologies, and that are environmentally friendly. The government is advised to avoid low-quality transfer projects and to consider national security in granting licenses as an aftermath of Chinese companies shifting to Vietnam to avoid US tariffs. The Politburo targets FDI of USD 30-40bn annually (disbursement USD 20-30bn) during 2021-2025 and USD 40-50bn annually (disbursement USD 30-40bn) during the 2026-2030 period.
The State Bank of Vietnam (SBV) sent out warnings to several commercial banks that pushed up short term deposit rates (above 8%) due to lack of liquidity and increased allocation to corporate bonds at high coupon rates issued by a few Real Estate companies.
Vietnam’s economy remained robust with plenty of indications of improvement and no signs of a slowdown globally. Industrial production was up 10.5% Y/Y, while retail sales increased 12.4% Y/Y. The August trade surplus clocked in at USD 1.7bn (USD 3.4bn during 8m2019) owing to surge in mobile phones and the accessories category. Vietnam’s trade reached USD 336bn, in which exports accounted for USD 170bn (up 7.3% Y/Y). Registered FDI slowed down to USD 13bn YTD (down 31% Y/Y), however, disbursed FDI stood at USD 12bn (up 6.3% Y/Y). Core CPI during 8m2019 increased slightly to 1.95% due to a hike in education and healthcare costs.
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